Location: Stamford
Author: Joan Weber
Date: Friday, February 20, 2009
As the U.S. government prepares to implement the latest phase of its bank rescue plan, new research from Greenwich Associates reveals that large companies around the world see previous efforts by national governments to restore the flow of credit as having only limited success.
Of the 599 large companies in North America, Europe and Asia surveyed by Greenwich Associates from January 28 – February 3, 2009, only 30% say it has become easier to secure credit in the three months since governments in the United States, the United Kingdom and other countries first announced their plans to shore up the banking sector and revive global credit markets. However, more than a quarter of the companies say credit has become more difficult to obtain over the period, and 44% say there has been no change. Results differ dramatically by region, with companies in the United States much more likely to report an improvement in credit conditions than their counterparts in Europe:
* In the United States, 35% of companies say credit has become more available since October 2008. Across all of Europe, however, only 22% of companies report that credit conditions have improved, including just 14% of companies in the United Kingdom.
* In Europe, nearly a third of companies say their access to credit has become more limited over the past three months, including 38% of companies in Germany. A quarter of U.S companies say credit has become more difficult to obtain.
* In Asia, where until recently banks had not been hit as hard as those in other regions, 40% of companies say their access to credit has improved since October and only 16% say it has worsened.
* The situation is similar in Canada, where 43% of companies say credit has become easier to obtain over the past three months and only 19% say conditions have deteriorated.
Where conditions have improved since the start of government rescue efforts, credit has begun flowing mainly to companies with investment-grade credit ratings. Around the world, 43% of investment-grade companies say credit access has improved since October, compared with only 13% of companies with credit ratings of BB or below and 26% of companies without credit ratings. More than 40% of companies with below-investment grade credit ratings say their access to credit has been further curtailed over the past three months, as do 23% of investment-grade companies and 27% of un-rated companies.
Essential Funding Still Hard to Come By
The survey results reveal that companies’ ability to access certain essential funding mechanisms has continued to deteriorate since the start of government rescue efforts. Around the world, 46% of companies say it has become harder for them to secure revolving credit facilities over the past three months. The situation in similar for term loans, which have become harder to secure for 54% of companies around the world, and for more than two-thirds of companies with below-investment grade credit ratings. “At least half the companies we surveyed say that, since October 2008, it has become more difficult for them to secure funding through commercial paper markets, structured finance, asset-backed securities, and long-term bond markets,” says Greenwich Associates consultant Markus Ohlig.
Most companies that have been able to secure funding from these sources have seen prices rise since October. In each of the financing methods covered in the survey, no more than a quarter of companies — and in some cases significantly fewer — say their pricing has not changed over the past three months. Meanwhile, between 60% and 70% of companies say prices have increased or increased substantially on commercial paper and revolving credit facilities, and between 70% and 80% of companies say pricing has risen on asset-backed securities, term loans, structured finance and long-term bonds. “These findings suggest that the increase in credit spreads has been so dramatic that financing costs have increased significantly for companies over the past three months — despite government policies that kept interest rates at historically low levels,” says Markus Ohlig. “This situation has undermined the impact of traditional monetary easing on the real economy.”
“The further deterioration of credit conditions since October 2008 will affect the ability of companies to fund their operations, if it has not already,” says Greenwich Associates consultant Robert Statius-Muller. “Almost 65% of companies say their need for funding for ongoing operations has not changed over the past three months, but the cost and availability of required financing has in many cases changed dramatically.”
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